The Economic Journal, 122 (May), 502–531. Doi: 10.1111/j.1468-0297.2012.02495.x. Ó 2012 The Author(s). The Economic Journal Ó 2012 Royal EconomicSociety.PublishedbyBlackwellPublishing,9600GarsingtonRoad,OxfordOX42DQ,UKand350MainStreet,Malden,MA02148,USA. ADOPTING A NEW RELIGION: THE CASE OF PROTESTANTISM IN 16TH CENTURY GERMANY* Davide Cantoni Using a dataset of territories and cities of the Holy Roman Empire in the sixteenth century, this article investigates the determinants of adoption and diffusion of Protestantism as a state religion. A territory’s distance to Wittenberg, the city where Martin Luther taught, is a major determinant of adoption. This finding is consistent with a theory of strategic neighbourhood interactions: intro- ducing the Reformation was a risky enterprise for territorial lords and had higher prospects of success if powerful neighbouring states committed to the new faith. The actual spatial and temporal patterns of expansion of Protestantism are analysed in a panel dataset. Starting with Max Weber’s (1930 [1904 ⁄ 5]) famous inquiry on the ÔProtestant Ethic and the Spirit of CapitalismÕ, religion has widely been seen by social scientists as one of the cultural traits most likely to influence economic outcomes. The findings about any direct effects of Protestantism on economic growth are unclear at best (Delacroix and Nielsen, 2001; Cantoni, 2010). However, economists have explored the connections and found robust correlations between religious denominations, in particular the Protestant one(s), and economic attitudes (Guiso et al., 2003), political institutions (Woodberry, 2010), literacy (Becker and Woessmann, 2009), social ethics (Arrunada,~ 2010), or even the introduction of Western knowledge in China (Bai and Kai-sing Kung, 2011). Where one’s religious denomination is a variable of choice and is often subject to changes over an individual’s lifetime (such as in the US), any observed correlation between faith and socioeconomic outcomes is difficult to interpret in a causal way. Individuals will potentially select into a religious group that espouses their own pre- existing attitudes, beliefs, or views of the world. On the other hand, in many other parts of the world religious denomination is a highly persistent variable, which is transmitted across generations. For example, in all likelihood a European (if she has not opted out of religion completely) is likely to have the same religion that her forefathers had in the eighteenth or nineteenth century, or even earlier. In such a context, understanding why certain regions have, at one point in time, decided to embrace the Protestant Reformation or to remain Catholic is of peculiar importance in order to disentangle the causal effect of religious denominations from other cultural traits or socioeconomic unobservables. The Holy Roman Empire in the 16th century provides a suitable setting to observe such religious choices across a variety of territories, within a limited time frame. The Empire was a loose confederation of hundreds of small and large territories of different * Corresponding author: Davide Cantoni, Seminar fu¨r Wirtschaftsgeschichte, Ludwig-Maximilians-Univer- sita¨tMu¨nchen, Ludwigstrasse. 33/IV, 80539 Munich, Germany. Email: [email protected]. I thank Antonio Ciccone, Ruixue Jia, Jared Rubin, Joachim Voth, Ludger Woessmann and three anonymous referees for helpful comments, and Regina Baar-Cantoni and Eike Wolgast for expert counselling on the history of German Reformation. Katharina Kube provided outstanding research assistance. [ 502 ] [ MAY 2012]ADOPTING A NEW RELIGION 503 kinds: secular principalities, ecclesiastical states such as Prince-Bishoprics, or city-states such as the Free Imperial cities. Between the emergence of Martin Luther’s critique of the Church in Rome (1517) and the normal year set by the Peace of Westphalia (1624),1 many of these territories effectively chose to adopt the new, Protestant faith; other territories chose to remain Catholic instead. This article focuses on the eventual decision made by the princes of the Holy Roman Empire. Through a provision of the Peace of Augsburg (1555), the rulersÕ choices were binding for their subjects. The high fractionalisation of the Holy Roman Empire provides the advantage of yielding many more units of observation than if the question was asked in other con- texts, e.g. for the other nations of Europe. There, the choice of whether to adhere to the Protestant teachings or stay with the Catholic Church was made at the level of sovereigns (e.g. the Kings of France, England, or Castile and Aragon) whose realms approximately correspond to the borders of their present-day successor states. One would thus be left with only a handful of observations, encompassing the highly idio- syncratic biographies of monarchs. Which were the determinants of these denominational choices? In a cross-section of 119 territories, this article finds that three variables are strong and consistent predictors of the adoption of Protestantism: the nature of a territory’s rule (ecclesiastical territ- ories were less likely to become Protestant); its size (territories with more political and economic power were more likely to remain Catholic); and its geographic location (territories more distant from Wittenberg, Martin Luther’s town, were less likely to become Protestant). On the other hand, a comparatively stronger presence of the Church at the beginning of the sixteenth century does not appear to tilt the balance in either direction.2 To understand the dynamics of the diffusion of the new creed, and the role of a territory’s distance to Wittenberg, I use a spatial panel model featuring the dates of introduction of the Reformation. The findings of this analysis suggest that the role of a territory’s distance to Wittenberg is consistent with a theory of strategic neighbourhood interactions. In an unsafe institutional setting – for large parts of the sixteenth century it was unclear whether the adoption of Protestantism would be tolerated by the Holy Roman Emperor – it was less risky to convert to the Reformation if a strong territory in the immediate neighbourhood had chosen the same path. The evidence thus points toward the importance of demand-side factors (the considerations of a local lord whether to introduce the Reformation) rather than supply-side problems (the avail- ability of Protestant preachers, or of knowledge about the new creed) in the expansion of Protestantism.3 To my knowledge, this is the first article to investigate the motives of the adoption of certain denominations as state religions in a comparative fashion. Barro and McCleary (2005) discuss the determinants of the presence of state religion in the twentieth 1 The Peace of Westphalia (1648) guaranteed the religious status quo of 1624 (Ônormal yearÕ) and prevented rulers in the Holy Roman Empire from imposing denominational changes after that date. 2 Political and economic power of territories is measured through their contribution to the Reichsmatrikel, the federal budget of the Holy Roman Empire. Church presence is measured through the number of monasteries. See definitions of variables in Appendix A. 3 In Section 3, I discuss other concurrent explanations that are at least partially consistent with the data: the cost of spreading information from Wittenberg across space; or the role of learning from a neighbour’s implementation of the Reformation. Ó 2012 The Author(s). The Economic Journal Ó 2012 Royal Economic Society. 504 THE ECONOMIC JOURNAL [ MAY century, finding various factors that favour the adoption of state religions. Their re- search interest lies however in the mere presence or absence of a religion that enjoys official sanctioning, not in its actual denomination. Also, they explicitly refrain from Ôexplain[ing] the motivations of Henry VIII in 1534 or Gustaf Vasa in 1527Õ (p. 1332), i.e. from considering the historical roots that led to the prevalence of certain denominations in given regions. More generally, in the economic literature the denominational characteristics of countries or their populations are mostly taken as given, often citing their persistence over time as a valid reason for their exogeneity with respect to other, present-day outcome variables.4 Among the historiographic literature comparative (or quantitative) enquiries of this kind are rare as well. More often, the focus is on single country/territory studies, pointing out the dynamics at work in those specific contexts. The essay closest to this project is a lecture by Walter Ziegler (2008). His discussion of factors promoting or pushing against the adoption of the Reformation yields a variety of predictions but is not backed by a systematic quantitative analysis. Other studies have focused on single factors, such as the role of the printing press (Rubin, 2011), of primogeniture (Sutter Fichtner, 1989), or of political structures (Swanson, 1967). Ekelund et al. (2002) embed the latter two explanations in a theoretical and quantitative economic analysis. More broadly, analysing the diffusion of a new religious denomination, such as Protestantism after its emergence in the sixteenth century, contributes to the varied literature about spatial patterns of adoption of social phenomena. Economists, political scientists and sociologists have explored these topics in the context of technology adoption (Foster and Rosenzweig, 1995; Conley and Udry, 2010) or, closer to the topic of this article, of the spread of certain types of policies (Besley